Cost of good solds and profits of Mini Mochi Munch, Business Finance homework help

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  1. Kokomochi is considering the launch of an advertising campaign for its latest dessert product,
    the Mini Mochi Munch. Kokomochi plans to spend $2.45 million on TV, radio, and print
    advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi
    Munch by $11.94 million this year and by $9.94 million next year. In addition, the company expects that
    new consumers who try the Mini Mochi Munch will be more likely to try Kokomochi’s other
    products. As a result, sales of other products are expected to rise by $2.92 million each year.

    Kokomochi’s gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin
    averages 24% for all other products. The company’s marginal corporate tax rate is 35% both
    this year and next year. What are the incremental earnings associated with the advertising
    campaign? 

    Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.

    Calculate the unlevered net income for year 1 and year 2 below:

    Incremental Earnings Forecast ($ million)

    Year 1

    Sales of Mini Mochi Munch  ___________

    Other Sales __________

    Cost of Goods Sold __________

    Gross Profit  __________

    Selling, General & Admin.  __________

    Depreciation __________

    EBIT __________

    Income tax at 35% __________

    Unlevered Net Income __________

Year 2

Sales of Mini Mochi Munch  ___________

Other Sales __________

Cost of Goods Sold __________

Gross Profit  __________

Selling, General & Admin.  __________

Depreciation __________

EBIT __________

Income tax at 35% __________

Unlevered Net Income __________

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